Incomplete Contracts, Limited Liability, and the Optimality of Joint Ownership
No 13881, CEPR Discussion Papers from C.E.P.R. Discussion Papers
The property rights approach to the theory of the firm is the most prominent application of the incomplete contracting paradigm. A central conclusion of the standard model says that joint ownership is suboptimal. In this note, we analyze a modified version of the standard model that is tailored to the organization of R&D activities, where one of the parties is wealth-constrained and protected by limited liability. It turns out that joint ownership can be optimal, since it avoids wasteful rent-seeking activities when limited liability rents are necessary to induce high effort. Our results are in line with the fact that R&D activities are often conducted in research joint ventures.
Keywords: Incomplete Contracts; joint ownership; limited liability; Property rights; rent seeking (search for similar items in EconPapers)
JEL-codes: D23 D86 L24 L25 O32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-cta and nep-mic
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Journal Article: Incomplete contracts, limited liability, and the optimality of joint ownership (2019)
Working Paper: Incomplete Contracts, Limited Liability, and the Optimality of Joint Ownership (2019)
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